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Possible reasons behind the slow down in luxury sales in China

Nov 13, 2012

With luxury sales declining in first-tier cities and flashy, showy brands taking an especially hard hit, many experts are trying to explain this change in China’s once red-hot luxury market. One field expert has come up with three interesting (and valid) possibilities as to why brands like Louis Vuitton and Burberry are facing tough times.

1. A Decline in Chinese Mistresses The custom of wealthy men keeping a xiao san, which translates to “little three” and refers to the third person in a relationship, is something that has burgeoned since more money and power has become available to private individuals. However, analysts at HSBC say the habit is now dying down, and with it the demand for bling and ostentatious gifts that mistresses favor to display their power. “A mistress is a way of projecting power in Chinese society, and power projection is very important,” said Tom Doctoroff, chief executive of JWT North Asia and author of What Chinese Want.

2. The Threat of Corporate Corruption Giving corporate gifts has become a past time among wealthy Chinese looking to make friends and influence people. In fact, corporate gifting is the only luxury market in the world driven by men. But now that companies are getting bigger, this practice looks more like bribery than schmoozing in the eyes of the public, and businessmen are being told to back off. “As business becomes more sophisticated and conforms more to international structures, then the role of gifting will go down,” Doctoroff said.

3. Brands That Can’t Keep Up with Trends Part of the decline is nothing more than quickly changing preferences: logos and bling are now tacky to many sophisticated Chinese consumers. Doctoroff said, “The Chinese are extremely savvy buyers relative to the length of experience they have in the consumer world. They pay a high price premium so really look for value, not just in quality, but what it says about the buyer. What they buy is increasingly understated — they want to show off, but discreetly.”